David Paredes, 29, a Harvard graduate and lawyer turned hedge fund employee began playing online poker around 2004. "Live poker is much slower," Paredes says, comparing live poker with online play. "I can probably play 30 hands an hour live, whereas if I'm six-tabling online I can probably get somewhere in the neighborhood of 500 to 600 hands an hour."

Whenever Todd Witteles signed on to an Internet poker site, the first thing he did was look around for inexperienced players. One day in August 2007, the Las Vegas poker pro thought he had found an easy mark on AbsolutePoker.com.

A newcomer using the name "Greycat" was making unusually big bets off weak hands. "He seemed like a bad player who had just been getting incredibly lucky," Witteles recalled. "When you see someone like Greycat, you stop everything you're doing to play."

But in a series of one-on-one games, Witteles quickly found himself down $15,000. Worse, Greycat began taunting him. Soon, some of Witteles's online poker friends began wondering publicly whether Greycat was cheating. It was almost as though he could see Witteles's hole cards.

It turned out that was exactly what Greycat was doing. After months of pressure from a small group of players who took it upon themselves to investigate the claims, AbsolutePoker was forced to admit that a cheater had cracked its software, and it refunded $1.6 million to Witteles and dozens of other players.

It appeared to be a huge victory for the players and the self-policing nature of the Internet. Yet just weeks later, rumors of a new scandal rocked the world of online poker, this time at AbsolutePoker's sister site, UltimateBet.com. The stakes were dramatically higher: more than $20 million cheated from players over four years. The alleged culprits included a former world poker champion and UltimateBet employees who had hacked into the site.

Even as Internet gambling grows in popularity and profits, with millions of players and billions of bets, the two biggest cheating scandals in online gambling are raising fresh questions about the honesty and security of a freewheeling industry that operates outside of U.S. law.

Unlike brick-and-mortar casinos that undergo rigorous security checks, many Internet gambling sites operate in a shadowy world of little regulation and even less enforcement, a joint investigation by The Washington Post and CBS's "60 Minutes" has found. Dozens of these sites are located in countries with no reporting requirements. The licensing agencies there essentially operate as pay-as-you-go boutiques, generating millions of dollars in fees while showing little interest in policing rogue sites.

As it has given birth to Amazon.com, eBay and scores of other 21st-century businesses, the Internet has also spawned its own gambling boom, with estimated revenue more than tripling over five years, to $18 billion annually, including about $4 billion from virtual poker.

Millions of the bets originate in the United States, where online poker and gambling sites are banned, forcing players to reach out across the Internet like modern-day bootleggers. Yet players have little way of knowing who is watching their bets or where their money is going. Often, owners hide behind multiple layers of limited partnerships, making it difficult to determine who controls the sites or to lodge complaints about cheating.

In the AbsolutePoker and UltimateBet cheating scandals, players decided to investigate the matter themselves after managers and regulators did not respond to their complaints. "No one would listen to us," said Serge Ravitch, a 28-year-old lawyer-turned-poker pro who played a key detective role.

A Tribal Business

AbsolutePoker and UltimateBet operate out of a shopping mall in Costa Rica, run their games on computer servers housed on an Indian reservation near Montreal, and are licensed by a Mohawk tribe that has no background in casino gambling and does not answer to federal or provincial regulators.

Joseph Tokwiro Norton, who owns both Web sites, is the former grand chief of the Mohawk tribe. He was instrumental in setting up the licensing agency and a highly profitable companion business that owns the server farm. Yet until he issued a news release in October 2007, even some of the most powerful members of his tribe had no idea Norton owned the poker sites.